Real estate and rising rates: prices must fall in 2023
The rise in interest rates pulls real estate purchasing power down. To buy the same surface, it is necessary to go into debt more heavily. The desired scenario to compensate for the sharp increase in borrowing rates: that real estate prices fall significantly. Still timid, this decline has begun everywhere in France, as evidenced by a large network of real estate agencies. Second option, which does not depend on the economic situation: the delegation of borrower insurance to reduce the overall cost of your mortgage and recover square meters. Fall in real estate purchasing power From 1% in January 2022, the average rate over the 20-year repayment period is now 3% (excluding mortgage loan insurance and cost of securities). No more easy money, a mortgage of €200,000 on this maturity now costs €66,207 in interest, compared to €20,749 at the end of 2021. The rates have almost tripled in one year and are heavily increasing the cost of a real estate project. Let’s look at the problem from a different angle. With a monthly payment of €1,000 over 20 years (nominal rate at 3% and bank borrower insurance at the rate of 0.34% included), you can borrow €171,500 in March 2023. In January 2022, the borrowable amount was at €204,800. Your borrowing capacity has been reduced by 16%. Most households are going into debt at rates above 3% in March 2023, particularly over the 20-year period for young households with little personal contribution and precautionary savings. According to the Banque de France, the fall in real estate purchasing power in 2023 is very real: the institution estimates that borrowers with a median salary lost an area of 12 square meters between December 2021 and January 2023 due to the sharp increase in the cost of money, ie a reduction in purchasing power of 15%. Access to real estate credit is difficult for first-time buyers, hit hard by the spectacular rise in interest rates, while housing prices are slow to decline. Will 2023 see prices fall? Towards a 10% drop in property prices in 2023? While many experts were not anticipating any decline in property prices a few weeks ago, it seems that a correction is starting to take place. According to Charles Marinakis, president of the Century 21 network, interviewed by the media BFMTV, real estate prices are beginning to fall and “this is good news” and even “a necessity in terms of market regulation”. To mathematically compensate for the rise in rates, it would be necessary, according to him, for prices to contract by 10% to 12% in 2023. due to soaring interest rates. We are not heading towards a turnaround in the real estate market in 2023 but towards a healthy rebalancing, in particular in areas where values have risen since the Covid-19 crisis (coastal, medium-sized municipalities close to metropolises) . According to data from notaries, on the basis of preliminary contracts, the slowdown in the rise in prices of existing homes would be significant at the end of February 2023: +4.6% over one year, and in retail +5.5% for houses and +3.3% for apartments, compared to +8.2% and +4% respectively in the 3rd quarter of 2022 over one year. The delegation of loan insurance to gain m2 While waiting for a real correction in property prices, bet on effective action to partially offset the rise in interest rates. Let’s take the example cited above, this time with delegated borrower insurance taken out outside the bank. With an insurance rate of 0.10%, your monthly payment of €1,000 over 20 years allows you to borrow €177,600: you have earned €6,100 solely by asserting your right to free choice of insurance contract home loan. Since September 2010, the Lagarde borrower insurance law has made it possible to take out insurance competing with that of the bank, as long as it presents an equivalent level of guarantees. The opportunity is given to you to reduce the cost of insurance more than substantially. The average saving is €15,000 for a loan of €250,000 over 20 years. Consult our latest real estate purchasing power barometer to measure the financial interest of borrower insurance delegation and if you already have a mortgage, take advantage of the Lemoine law to save money. Among the changes in borrower insurance thanks to the Lemoine law, there is this flagship measure: the change of mortgage insurance at any time, without waiting for an expiry date or respecting a minimum subscription period. You are no longer captive to the bank insurance which costs you a high price. Put mortgage insurance offers in competition via a borrower insurance comparator, a simple, fast and free tool that gives you access to the most competitive contracts on the market.
